News

CME: US Beef Imports Expected to Decline Over 2016

15 February 2016

US - US beef imports are off to a slow start and there is broad expectation that import volume will decline sharply in 2016, write Steve Meyer and Len Steiner.

This is expected to offset in part the increase in domestic production. USDA forecasts domestic beef production in 2016 to increase 3.7 per cent from 2015 levels and yet per capita consumption is forecast to increase just 0.7 per cent.

The decline in imports is expected to limit the expansion in beef availability (higher exports are also expected to play a role). The last USDA WASDE report forecast US beef imports at 2.845 billion pounds, down 525 million pounds (-15.6 per cent) compared to 2015 levels.

This may appear like a very dramatic decline, especially considering the strength in the US dollar and a deterioration in economic conditions across the world. But, as we have mentioned in the past in this report, one needs to recognise what has been driving the expansion in US beef imports in the last few years and whether such growth is sustainable in the next two years.

The charts provide a summary of US monthly beef imports from all major importing countries.

Australia is by far the largest supplier of imported beef in the US. In 2015, imports of Australian beef were 1.258 billion pounds (carcass wt. basis), 16.2 per cent more than the previous year.

But what is even more impressive is that Australian beef imports last year were some 604 million pounds larger (+92 per cent) compared to just three years ago.

As we have noted before in this report, the increase in Australian beef shipments to the US was due, for the most part, to the rapid liquidation of the Australian cattle herd. In 2013, the Australian cattle herd hit a 30 year high of 29.291 million head.

The Australian cattle inventory is projected by Meat and Livestock Australia to be down to 26.179 million head by the middle of 2016, a 10.6 per cent decline in inventories in just three years.

This would be as if the US cattle herd dropped by 10 million head over the course of three summers - a truly devastating event precipitated by extreme drought conditions.

Australia has gone from having the highest inventory in 30 years to having the lowest inventory in more than 20 years. In this context, expecting a notable reduction in Australian beef imports in 2016 does not seem so far fetched.

Will Australian beef shipments fall back to the levels we saw in 2012 and 2013? Probably not.

It is likely that Australia will face stiffer competition from Brazil in the Chinese market, especially with more and more Brazilian plants certified to ship into China. Also, US beef prices remain at some of the highest levels in more than 15 years, thanks to the shift in the exchange rates. This is particularly the case for lean grinding beef.

Australian beef shipments to the US in January were down 34.7 per cent in January and based on current shipments we expect February exports to also be down 31.3 per cent.

Projecting further out (based on their expected slaughter) we would expect their exports to the US in March and April to be down anywhere between 28 per cent and 35 per cent.

A 25 per cent decline in Australian shipments to the US in 2016 would imply a 315 million pound reduction compared to 2015 levels. This would account for about 60 per cent of the current USDA projected decline in US beef imports.

Imports from other markets may also face headwinds. Imports from Mexico have increased dramatically at a time when the Mexican cattle herd continues to decline.

The pace of imports from Mexico is expected to decline as well. The same can be said for Canada, New Zealand and Central American countries. There is one major wild card in projecting imported beef volumes - Brazil.

At this point Brazil is allowed to ship fresh/frozen beef to the US but the equivalency process has yet to be completed. The Brazilian cattle herd has expanded sharply in the last three years (and will continue to grow).

If Brazil comes in later this spring or summer, it could dramatically change the dynamics in the US imported beef market.